JOBS Act has little positive effect on IPO market, say bankers

Leading investment bankers say new rules make it harder to advise clients on IPOs, BDO survey says

Less than a third of investment bankers believe that US regulation changes made last year to encourage initial public offerings by smaller companies is boosting the number of IPOs, according to a survey by accounting and consulting firm BDO USA.

Some 29 percent of capital markets executives at leading investment banks say the Jumpstart Our Business Startups (JOBS) Act, which took effect in April of last year, is leading to an increase in the number of IPOs, according to the survey. The number is down significantly from a survey taken last summer that showed 55 percent of the executives felt the JOBS Act was boosting the number of IPOs.

In the latest BDO survey, taken in December and involving 100 executives, some 42 percent say the JOBS Act was not increasing the number of IPOs, while 28 percent said it was still too early to tell. In the survey last summer, 45 percent said the JOBS Act was not prompting more companies to go public.

‘The survey clearly shows that the investment banking community is less enthusiastic about the JOBS Act than it was immediately following the law's enactment,’ says Wendy Hambleton, a partner in the capital markets practice of BDO USA, in a statement. ‘In addition to the lack of a positive impact on IPO numbers, the bankers indicate that the new law's confidential filing provision has made it more difficult for them to advise clients.’

Some 80 percent of the investment bankers interviewed in the telephone survey say the JOBS Act made it more difficult for them to advise clients on upcoming IPOs, due to decreased transparency and greater scarcity of information about the companies making the offering; 9 percent described this difficulty as ‘substantial.’

About 100 companies last year explored using the JOBS Act to launch IPOs, according to SEC data. The act aims to help companies raise capital primarily through lightening securities regulatory requirements for so-called emerging growth companies.

According to BDO’s 2012 IPO outlook, about half of US investment bankers expect IPO activity in the US to increase this year, while 31 percent say it would stay roughly the same as last year. The biggest threat to the 2013 IPO market is the possibility of US tax increases and spending cuts, according to 37 percent of the executives surveyed. This was followed by global political and financial instability, which was cited as the main threat by 34 percent.